Young people have experienced the tightest squeeze on household spending since 2000 and now consume 15 per cent less than older working age people on items other than housing, according to a new report published today (Saturday) by the Resolution Foundation.
The finding of a consumption ‘youth deficit’ is in stark contrast to common claims that today’s young are spending like there’s no tomorrow and mark a major turnaround from the recent past when earlier generations experienced a ‘youth premium’.
Consuming Forces – the tenth report for the Intergenerational Commission – tracks the spending patterns of different age groups since the 1960s to see how changes in earnings and incomes have fed through into what people spend their money on from week to week.
The report details a major spending boom across Britain in the second half of the 20th century during which average real household expenditure for working age adults almost doubled, from £162 a week in 1963 to £293 in 1989.
Young people benefitted most from this late 20th century spending boom. Having spent 3 per cent less than older people back in 1963, by 1989 those aged 25-34 (which included members of the baby boomer generation) were spending 11 per cent more than those aged 55-64.
However, these age differences have been reversed since 2000, with young people today (the millennial generation) experiencing a tighter spending squeeze than any other age group.
This reversal of fortunes means that young people’s spending power relative to older working age adults is back to where it was in the early 1960s. In 2014, millennials (aged 25-34) spent roughly the same as baby boomers in their late 50s and early 60s – a similar ratio to that in 1963.
The report shows that the intergenerational turnaround in living standards is even starker once growing pressure of housing spending – which has particularly affected younger households – is included.
In 2000, 25-34 year olds had identical non-housing spending to 55-64 year olds. However, by 2014 young adults were consuming 15 per cent less than older working-age people.
Consuming Forces also busts many of the myths that have arisen about young people’s spending habits, including:
Avocado-on-toast – Over time, households have spent less on eating in, and more on eating out. However, the biggest increase in eating out since 2000 has taken place amongst the baby boomers compared to their predecessors at the same age, rather than millennials as is often claimed.
The iPhone generation – millennials are the first generation to spend more on mobile phones (£7 per week) than on alcohol and tobacco (£6 per week). However, these shifts are reflected across all generations – older people today are also spending more on mobile phones and less on tobacco and alcohol than previous generations of older people.
Holiday baby boom – Contrary to their footloose reputation, consumption of holidays for young adults has been flat since 2000. In contrast, older working-age adults (aged 55-64) have experienced the strongest growth in holiday spending since 2000 and have higher consumption than any other age group.
Laura Gardiner, Senior Policy Analyst at the Resolution Foundation, said: “During the second half of the 20th century, British households experienced a huge consumption boom. Young baby boomers benefitted most from this growth as healthy pay rises fed through into a clear ‘youth premium’ of higher consumption compared to older people.
“But young people’s progress has gone into reverse in the early 21st century as they’ve been hit hardest by a major slowdown in consumption, particularly since the financial crisis.
“The shift from a ‘youth premium’ to a ‘youth deficit’ has meant that millennials in Britain today have less spending power than older people, particularly once they’ve paid their housing costs. This stark change of fortunes helps to explain why so many people are anxious about the prospects of the young.”
Donald Hirsch, Professor of Social Policy at the University of Loughborough, said: “In comparing living standards to the past, we need to consider dramatic changes not just in how much we spend, but in what we spend it on. While consumption for some groups has been falling, we consume on average over twice what we did 50 years ago. But real expenditure on food, fuel and clothing has remained about the same, with all the new expenditure coming on other items that enrich people’s lives, such as leisure, travel and personal goods.
“Younger generations have coped with having lower disposable incomes in a variety of ways. Some have cut back on the basics, including food, or accepted inferior quality housing. To some extent they buy fewer goods, and prioritise spending on current experiences such as eating out.
“The image of millennials living a carefree existence and thinking only of today is wide of the mark. Overall they have cut back on leisure spending, particularly those on low incomes, and it is boomers in their 50s and 60s whose spending on eating out has grown fastest.”
Notes to Editors
The baby boomers are those born 1946-1965; generation X are those born 1966-1980; and the millennials are those born 1981-2000.
In this analysis we define working age adults as those aged 25-64.